Tesla takes another step

Tesla blew expectations out of the water with their quarterly earnings, getting about $0.12/share, when expectations were $0.04/share (and stockholder expectations may have been yet lower: the stock is very, very, very heavily shorted).

It’s important to know what to take away from this and what not to: their profit is still thin (about $15 million on a company that has been capitalized to the tune of over a billion).  Their profitability is one quarter old, and is dependent on continuing government subsidies.  And their volume remains very small.

But what they seem to have proven is that it’s possible to build a luxury electric car that meets a market demand despite limited range, that seems possible to build and sell profitably on the margin (even without the $7,500 subsidy), and that both auto reviewers and consumers are excited about.

Their next few steps are:

1.  Increase Model S volume.

2.  Prove that enthusiasm for the Model S is durable.

3.  Move downmarket.

And that #3 step is a potential killer.  It’s not clear that they can make a $30,000 electric car that inspires anything like the enthusiasm of the Model S.

But a lot of people have bet against Tesla thus far, and now they’re staring at shorts on a stock that just rose 30%.  There is a big market of urban liberals (and I include myself in that category, in this case!) who are eager for an electric car with performance and interior that is roughly similar to the Mazda3, Honda Accord, and Toyota Camry, and who are willing to swallow a 100 mile range (either because they’re deeply urban or because they are a two-car household and can use a gas car for their longer trips) to get there.  It may be my enthusiasm for electric car technology, but I wouldn’t bet against Tesla right now.

Disclosure:  I do not own any Tesla stock.

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